Is gold a bubble?

Hello,

I've been getting a lot of stick from gold bugs about an article I wrote on my blog saying that I thought gold was a bubble that has probably peaked. The article was Gold Bubble, if anyone is interested.

I'm not all that sure that I'm right though, but I think that gold is probably a bubble because I can't find any way of measuring it's underlying value that justifies it's price. And recently, gold seems to have decoupled from it's previous pattern of stock market falls, gold goes up.

I'm hoping to get some peoples thoughts on this before I put my money where my mouth is and short gold.

Basically, I'm looking for people to challenge my views, especially the following views -

1. Gold produces no yield and therefore has very little actual underlying value other than it's usefulness in jewellery and the likes. Gold therefore does not actually need to cost to much more than the cost of producing enough of it to meet the demands for it from industry. The only real reason people will pay $1,600+ for an oz of gold is they believe others will (i.e. it's a speculative bubble).

2. The powers that be will not re-integrate gold into the financial system, there is no political will for a return to a gold standard.

3. And this is the most difficult. Gold was very useful as a fear index with crashing stock markets meaning rising gold prices. In the last couple of months gold has de-coupled from this pattern.

Any comments will be careful read and much appreciated.

When gold dealers started putting up vending machines in super market stores that means there is a surplus of gold on the market. Create enough surplus and prices will drop, law of economics. Gold is a commodity that is sold almost exclusively by fear. You will notice conspiracy theorists are always big gold sellers. They pop up every recession. Once the fear is gone it will drop like a rock. Because of the uncertainty of Europe at the moment gold could take off again if there is a big enough news story to cause genuine fear in the marketplace. If they some how solve their problem or are able to kick the can down the street or block again then you will see gold fall. So you are not that crazy.

Gold is one of the most highly-sought after precious metals in the world. It is used in jewelry, electronics, and coinage. Gold is widely considered to be an effective hedge against inflation, which means that when the dollar depreciates, demand for gold increases. In addition, during times of economic and political uncertainty, the demand for Gold rises due to its high intrinsic value and relative stability. Moreover, the introduction of gold ETFs and the increasing wealth in emerging markets, such as China, India, and Latin America have contributed to rising demand for gold. While demand for gold has been rising, supply has been dropping as many of the top gold producing countries have had decreasing production over the past few years.

IMAGINE we are aliens watching the earth.
Man dig up this metal, process it into bars then they build a vault to put it again underground.

Gold has no return , instead it has storage costs, not much indutrial use.
It's not a necessity, I won't die without gold, but then again it's limited in supply. All i can say is that it's a good hedge against inflation, but if the rise of gold beats the rise of other commodities then it means it's over speculated.

We cannot really if the gold's price reflects a bubble. Actually, nobody does. However, we need to look at the global demands for the precious gold and analyze its trend. Analysts say that we have already produced more than 50% of the inventories of the gold, which means that it is going to be more expensive. Likewise, the technology industry are using more and more precious metals, especially for the semi-conductors industries and it does not look like they have an alternative for that. In my point of view, the recent declines of the precious metal was caused by the general atmosphere in the market and not by anything else.

http://www.cftc.gov/MarketReports/Ba...orts/index.htm
Net short position %

wooohooo someone who actually reads the CFTC reports! not many use these reports to help them in their trading decisions not the short term traders anyway

my answer NO,

how can gold, silver be a bubble, if you go and buy a 1 kilo bar of gold and store it in your home and the paper price of gold drops $400 in 1 day you go and check that 1 kilo bar of gold and its all still there, gold is gold, silver is silver they dont change the only think that changes is the fiat currency they are priced in which is the dollar

the reason for gold and silver going up is that your need more paper dollar to buy the same 1oz of gold or 1oz of silver, silver and gold has not changed as its the same 1oz it was 100's of years ago, i know the more dollars they print de-vaules the paper dollar more which then means you need more paper dollars to buy the same 1oz of gold, i could be wrong but thats just my view on the gold, silver bubble claim, long before we had paper dollars and other fiat currency gold and silver was the currency of the world till the central banks came along and changed all that, gold and silver are real currency 1oz of gold 100's of years ago still buys you the same today as it did back then, all paper money are is debt and iou they have no value as money is created from debt

Have a look back through the past two years.

Despite huge price rises, futures have been net short.

I wouldn't worry about the fact that market makers and producers short and hedge themselves in the futures market.

http://news.silverseek.com/TedButler/1219417468.php
http://www.theundergroundinvestor.co...hysical-coins/

thanks for the undertaken topic. interesting to read!

I do not think gold is in a bubble, but will probably be eventually. There is constantly growing amount of paper money in the system (although it did go down slightly during the crash, and fed had to step up their game) and gold/silver will be repricing to reflect that. Dow/Gold ratio is around 7 at the moment, which is more or less average as far as i recall, it could go down to 1, so a "bubble" could get 7 times bigger as it has happened before. Now what this would be in dollars is hard to say, if there is inflation, that could be 10,000USD or 50,000usd or 1mil usd per ounce. In deflation, the much lower. However, with duo of big government spending and world number 1 deflation buster at the head of the FED, deflationary scenario seems unlikely.

I think it will keep on growing, especially with the volatility nowadays in the currencies markets. I am testing gold for some time now (4 m) and my signal results are profitable in an increasing pattern. I myself am not an experienced trader, or an EA programmer but should I continue to follow (with a proper management) I am positive pips will be coming more than from currencies pairs. I've also noticed that when my forex signals are loosing positions, my gold ones are gaining...might be just my hunch but works good for hedging.

The biggest bubble ever!

Of course it is. People get overly bullish on something(tech stocks, real estate,dutch tulip bulb) and in this case gold. It is just matter of time, it will come back down and burning bunch of people in the process.

Thats what they were saying last week as well but still bubble or not, it has not gone burst three days now, it's shooting some good pips for me

I can see only positive result in investing GOLD&Silver as it is going to be the only safe investment while Dollar collapse. There is nothing like GOLD bubble in my point of view.

why do you think the dollar will collapse? imo, is actually the opposite it gives signs it will collapse and then you see the FED interventions and it keep s going on stronger.

If the US Dollar were to collapse why would gold and silver be guaranteed to hold their value? Why not stocks/shares in productive global companies that pays dividends on their profits? Why not farmland? Why is it such a given that gold simply must store value when you can't eat it and it produces no yield?

Gold is not money, it's an asset. Our monetary system is no longer based on gold. Even if the entire worlds monetary system were to collapse I don't see how that guarantees that the new monetary system would be based on gold.

What am I missing?

Hombre, I think what you are missing is that the Bretton Woods system is unofficially back...